Maybank’s strategy pays off, enough capital to withstand headwinds

According to notes by Maybank group president and CEO Datuk Abdul Farid Alias(inset pic) in the annual report, the bank

PETALING JAYA: Malayan Banking Bhd (Maybank) has maintained its return-on-equity (ROE) targets for this year, signalling that the bank is well prepared for any external headwinds and tightening of accounting standards that is to come into effect January next year.

In its latest annual report, Maybank stated that it is expecting an ROE of between 10% and 11% for the current year of operations that ends on Dec 31 this year.

According to an analyst, Maybank’s confidence in the ROE numbers indicates that it is well prepared to face the requirements to provide for its long-term assets under the new international accounting standards that all banks have to comply by Jan 1, 2018.

“Maybank’s total capital ratio and CET1 (common equity tier-1) capital ratio is the highest in the region and the country, respectively. It has been prudent in the last one year and it has paid off,” said the analyst.

In its annual report, the biggest lender in Malaysia said it would also continue to be disciplined in asset pricing, while looking to grow cheaper source of funding, to minimise the impact of net interest margin compression as part of its growth strategy this year.

According to notes by Maybank group president and CEO Datuk Abdul Farid Alias in the annual report, the bank’s target is to achieve a group loans growth rate of 6%-7% for 2017.

Other key-performance-indicator targets for this year include an ROE of 10%-11% and group deposit growth of 6%–7%.

Maybank had a total capital ratio of 19.29% and CET1 ratio of 13.99% as at end-2016. It was the highest in the region and the country, respectively, underlining its capital strength.

Abdul Farid said while the group expects global economic growth to pick up to 3.2% this year from 2.9% in 2016 on firmer commodity prices and relatively better trade growth, the wild card remained in external trade, given the uncertainties over United States trade policy decisions, which could have a ripple effect on this region.

“Against this operating environment, Maybank group remains focused on driving income growth by improving our fee-based income through strengthening our cross-sell for products and services, focusing on project financing for infrastructure projects across our Asean footprint, participating in capital market deals across the region and targeting loan growth in segments within consumer lending and retail small and medium-sized enterprises,” Abdul Farid said.

In a move to improve fee-based income, Maybank will also tap into trade-related service fees on the back of potentially improving regional trade flows and possibly improved capital markets should volatility in global markets subside.

The group, however, would remain vigilant on improving productivity across all business segments and continue with its strategic cost management programme initiatives.

“Our drive to improve productivity and maintain disciplined spend will be the fundamentals to keep our cost growth in check vis-à-vis income growth,” Abdul Farid said.

Concurrently, Maybank said it would maintain its prudence in monitoring asset-quality concerns that could prolong into 2017 for identified sectors such as commodities and shipping.

“We remain watchful over asset quality concerns that could prolong into the year. The stability seen in commodity prices such as crude oil will take some time to translate into upward revisions of our borrowers’ cashflows.

“As such, we will continue to work closely with our borrowers to assist them in addressing their repayment abilities,” Abdul Farid explained.

In general, Maybank expects the Asean-6 countries to see better growth at 4.8% in 2017, compared with 4.5% the year before, with improvements in markets such as Malaysia, Singapore and Thailand.

It expects Malaysia’s economy to expand 4.4% this year, underpinned by domestic demand and stronger investment growth alongside a pick-up in Government consumption expenditure.

Singapore’s growth for 2017 is estimated at 2.5%, supported by a cyclical uplift from a synchronised global recovery as manufacturing and trade-related services continue to lead the country’s recovery, while Indonesia’s growth is forecast at 5.1% on the back of fiscal spending on infrastructure projects.